Question

In a machine shop, the cost of scrap is running at 8% (each 1% represents £4000 per week) and approximately £2000 per week is being spent on prevention measures. What would be the likely cost benefit to the business of doubling the money spent on prevention from £2000 to £4000 per week? Estimate the weekly prevention cost and the associated scrap percentage at which the quality loss for this situation would be a minimum. 1. What will be the new scrap rate %?WHat calculation do we take in consideration?

Answer 1

Doubling the money spent on prevention from £2000 to £4000 per week would result in a new scrap rate of 1%.

Step-by-step explanation:

To estimate the new scrap rate percentage, we can use the fact that each 1% increase in scrap represents £4000 per week. Doubling the money spent on prevention from £2000 to £4000 per week means that the prevention cost will increase to £4000 per week. Now, we need to find the scrap percentage that corresponds to this new prevention cost by dividing the new prevention cost (£4000) by the cost per 1% increase in scrap (£4000). This gives us a new scrap rate of 1%.